Second study finds Uber used opaque algorithm to dramatically boost profits
73 comments
·June 25, 2025t_mann
bko
I don't know, isn't the consumer surplus evidenced by people using the app?
I wouldn't think of just blindly hailing a cab anymore, especially in a city that's new to me. It doesn't have to be the lowest possible price, the experience just has to be consistent.
Log into the app. It already has my credentials and payment information stored. See the price, distance and time up front. Follow along the route while I'm driving. No money exchanged, no watching the meter or wondering if he's driving me around in circles. No fumbling for payment or pressure to tip.
That's the value.
In terms of price discrimination, they make more money on business travels or when it's crazy busy. The alternative is you can't get a cab. So I'm okay with it.
Their operating margin is about 10% which is reasonable for a business. The S&P 500 operating margin is 12.22%
And it's super easy to shop around. I always look at both Lyft and Uber and almost always go w/ Lyft as it usually has the lower price.
What are people complaining about exactly?
https://substack.com/home/post/p-163022654
https://www.gurufocus.com/economic_indicators/4226/sp-500-op...
dotandgtfo
I think the issue arises from them doing this on the supply side of the market as well. Discriminating offers to drivers in order to prioritise people willing to drive for less. Or just finding ways to pay people less through algorithmic means.
It's not like people were very happy about their "disruption" of the job market to begin with.
argomo
You lack imagination. Two customers with the same itinerary might be quoted different prices not because of capacity constraints but because the platform has inferred that one customer is willing to pay more than the other... that's extracting consumer surplus and converting it to supplier surplus.
golemotron
More businesses than the authors can imagine work this way. They really ought to sit down and have a coffee with some salespeople.
kristopolous
You mean generally? Technology mystification. Taxis used to have price regulations and rules and the drivers were part of unions with health care benefits and pensions.
Now it's not-really-employees with magical floating prices and people accept it because "computer".
troupo
> I don't know, isn't the consumer surplus evidenced by people using the app?
You spend 10 years price dumping and being unprofitable to the tune of being 20 billion dollars in the red.
Customers are attracted by your price dumping because you offer cheaper rides than competition which has to deal with pesky insignificant things like labor laws, employees, inventory etc.
Did you create "customer surplus"?
nimbius
> Who would have thought that they'd turn that research into algorithms that skim off surplus (from consumers and drivers)?
Literally any educated adult whos ever read Marx, Engels, or Paul Sweezy.
literally anyone whos ever turned the lens of historical materialism on capitalism.
i_k_k
I’m not a huge fan of Uber’s corporate policies in general, but help me understand what’s wrong with this. Isn’t this what any company would do: maximize revenue from customers while minimizing expenses to their suppliers? Most businesses don’t tells us how they do this.
My grocer sells me a can of beans at some price. I have no idea how they arrived at that price, how much they paid their wholesaler, or that they may have a sale on beans next week. I buy or don’t buy beans based on whether I feel they’re worth the cost. And whether I feel like beans.
jowea
If I understand TFA correctly, what is going on, is that the grocer is going
* This person is wearing a suit, I'm going to charge double
* This is a regular that always buys the same thing every week, I can charge 30% more without breaking his routine
* This one is buying the ingredients for a recipe to do tonight, I can charge double more on one product because she won't want to go to another grocer just for one missing item.
Or in economic terms it is doing price discrimination to turn the consumer surplus into profit for itself. I think it's obvious why consumers wouldn't like that. Although they can also do "this one is a cheapstake with lots of free time, I have to offer a 20% discount to keep him coming"
netsharc
Next: Cheapskate as a Service. Are you a cheapskate that can get discounts? Sign up on our app and use your "he gets great discounts" status to buy things for others, and earn a percentage of the savings!
tcoff91
With the way things are going, this isn’t even far fetched.
i_k_k
Love it!
vjvjvjvjghv
"* This is a regular that always buys the same thing every week, I can charge 30% more without breaking his routine"
This one is getting to me more and more. When I grew up, you got the best deals as a regular customer. Nowadays it's the opposite. Loyalty is something that can be exploited. If you don't switch insurance regularly, you are paying way too much. If you stay at a job for longer, you get paid under market. If you use a service regularly, you get charged more.
I think it's really corroding society when loyalty and trust are viewed as an exploitable weakness.
onlyrealcuzzo
I think Uber sucks, but people keep using it, and seem to beg to differ.
I don't see what the problem is.
Presumably people are fine with getting "ripped off" by Uber, otherwise they wouldn't keep using Uber and paying for it.
It's not like it's some free ad-supported product that's a scourge on society where all the costs are hidden.
I avoid Uber at all costs, other people are happy to rely on it. To each their own.
Fun fact, it's very easy for apps to see what apps you have installed on your phone.
If you only have Uber installed on your phone, see what happens with future pricing when you install Lyft, Curb, Waymo, etc.
You don't even need to ever use them. Just have them installed.
wiz21c
> I don't see what the problem is.
The problem is most people don't know. In my country you can't change the price for a given person. So if you don't know it's done, you can't change your behaviour (like do legal actions).
haswell
> Presumably people are fine with getting "ripped off" by Uber, otherwise they wouldn't keep using Uber and paying for it.
I’m not sure why we should presume people are “fine” with this just because it’s something that happens.
Plenty of things happen in this world that are not “fine” and make people upset, but continue to happen because of market forces, lack of reasonable alternatives, something being the “least bad” option, etc.
I think one of the most glaring issues is that Uber has established dominance in the category, which gives them power of their users and allows them to implement pricing strategies that are user-hostile with less chance of repercussions.
heavyset_go
You can't look at an economic transaction and deduce that parties involved were "fine" with it.
troupo
> It's not like it's some free ad-supported product that's a scourge on society where all the costs are hidden.
UncleEntity
> I think Uber sucks, but people keep using it, and seem to beg to differ.
This sort of thing happens when you reach de facto monopoly status...
georgeecollins
I was thinking the same thing! Also, I have a Lyft app on my phone right next to Uber. Most places I go are served by both customers. It's easier to switch than groceries.
aunty_helen
Your grocer doesn’t sell the next person a can of beans at a different price though. Hey nice watch, we have a 50% on discount for you.
I use uber a lot, I’m in one right now. My partners phone consistently gets cheaper estimates.
kirykl
If the retailer is in a monopoly position and the prices are not public it may be exploitative
cameldrv
Slightly off topic, but Lyft has really creeped me out recently. The last three times I’ve landed at SFO, I’ve gotten a push notification on my iPhone from Lyft saying “welcome to SFO, get a Lyft.” It’s always come as we were taxiing to the gate.
After the first notification, I turned off location services for Lyft and only do one time authorizations, and then close the app when I’m done, but I still get the push notification. How is Lyft figuring out that I just landed at SFO? FWIW it has not happened at any other airport.
lyton
There are many theories about this, but the one I find most plausible is that the airlines sell the data to Lyft.
Previous HN discussion here: https://news.ycombinator.com/item?id=43687696 Another forum discussion: https://archive.ph/wip/ck9CJ
TriangleEdge
My first thought was it could scan the WiFi names. I think there's many ways to determine location without GPS.
cameldrv
Apple restricts this as part of the location services permission though, and to clarify, it’s always happened very shortly after touchdown, just as we started to taxi, where probably the terminal WiFi is not in range.
After thinking about it more, I think they somehow know what flight I’m on and are using flightaware or a similar service to know when the plane touches down.
The question then is how they know I’m on the flight. They can do this if you share your calendar with them, but I don’t. The only thing I can think of is either the airline is selling them the data or they’re getting it from my credit card company. Airline flights are unusual on credit cards in that the entire itinerary is on your credit card statement, not just “American Airlines” or whatever.
joe_guy
I wouldn't assume this is how it works. But it could know your time zone changes and assume departure/arrival times based on it not being able to ping a server, then link this between possible airports based on time zones then possible flights based on the times.
But I suspect the false positives on this would be huge and if you felt so compelled could easily test while at your desk.
cs702
The author of the study has written a blog post with lots of data, analysis, and visualizations:
https://len-sherman.medium.com/how-uber-became-a-cash-genera...
I found the author's blog post more informative than the newspaper article.
AnotherGoodName
A suggestion: Install both Lyft and Uber (or whatever the second biggest ride app is in your area).
I get regular notifications along the lines of "$20 off your next ride with Lyft/Uber" when i do this. I do not get these otherwise. It's pretty clear that to use a ride app you need to have at least 2 on your phone, otherwise there's no reason not to charge you exorbitantly since you've trapped yourself.
Gys
I also have several apps installed and usually check one or two for the same ride. Pretty sure the one not chosen offers a discount next time.
AnotherGoodName
Yeah for all the talk that it's impossible for the apps to detect each other, "app was opened and a destination set but ride never taken" is a pretty easy thing for an app to trigger a notification on.
In fact i just tested. Lyft discount notification came in after 2mins of doing the above.
subarctic
I wish Lyft was in my city
_DeadFred_
This is why people hate modern tech companies. They don't optimize for efficiency and providing the best service, they optimize for profit in 500 different messed up manipulative ways. I don't want to have a 'social credit score' to manage while on vacation in the form of my AirBnB rating. I don't want to gamify between two apps to get a ride. But tech says 'do it or we'll exploit you'.
Modern tech business models make you pay a tax to not waste mental energy on their BS games and it gets exhausting. So you stop and resent the companies for ripping you off/manipulating you. I hope that frustrations comes back to bite them and instead of being special darlings with regulation carveout's they become the most regulated industry.
macintux
On an iPhone, there should be no way for one app to determine the other is installed. Are you using Android?
JimDabell
This can usually be done on iOS by testing custom URL schemes. When it became apparent apps were doing this, Apple changed it so that you need to declare at build time exactly which schemes you are looking for. This information is present in the app bundle, so anybody can download and inspect the Uber app to determine if they are doing this.
AnotherGoodName
I am using an iPhone. I assume the difference comes from taking a break from one app over the other. They are probably noticing I'm not doing my usual routine (because the other app gave me a discount).
hermannj314
Does Uber have a patent moat or is their moat the brand?
For as much hate as they receive, I'm not sure why a driver-owned cooperative app has not emerged that takes no profit. Is there something like this we should all start using instead?
There isn't much technological innovation in ride-sharing that the FOSS community couldn't solve. I'd love to work in this area.
williamdclt
> driver-owned cooperative app that takes no profit
FWIW, the oversight of Uber on drivers is part of the success of Uber. I'm not talking about their mistreatments of drivers, but the fact that as a consumer I have reasonable confidence that the driver has been doing a decent job so far and that if I have a problem with the driver, there'd be some consequences through Uber.
It's part of what allowed their success: from unaccountable taxi mafias to a service consumers can trust.
It's far from perfect of course but it's good enough that I'm confident enough using Uber (although I avoid it for other reasons) even in foreign countries. It's probably not impossible to achieve with a co-op, but it seems more difficult
ellenhp
I've been treated to the the "you're so beautiful, do you have a boyfriend" act about 2% of the time[0] I get into a stranger's car pretty much across the board, which makes me a little bit skeptical about whether these companies do meaningful oversight. It's possible that these incidents go mostly unreported though. I didn't report mine.
As an aside, this is why I generally trust public transit more whenever it's an option. The worst case scenario is just so much less sinister when there are other people around than it is in a car alone with a stranger.
[0] once in a lyft in seattle, the other in a taxicab in barcelona. figuring I've taken about 100 lifetime solo car rides with strangers which is probably an overestimate.
jajko
> From unaccountable taxi mafias
This is my biggest problem with taxi service in the past. Unless they behave criminally towards you and you can go to police, you were at their mercy. Any cost had to be accepted, no idea how much it would cost upfront.
There were whole scam rings around that in some parts of Europe, taking foreign customers via very elongated roads to destination. Or a story from a colleague - taxi driver in Paris literally threw out a customer in the middle of highway since he didn't like his personal political views on famous french protests. In normal situation that would mean the taxi guy losing his 200k euro medallion, in reality of course nothing, zilch, nada.
bad_haircut72
Yes their moat is the brand, drunk women will get in an Uber and feel safe because corporate is ultimately putting their name on the line every ride. Nobody will feel safe dealing directly with random strangers.
korse
This. Also, Waymo, if they keep scaling, is going to eat their lunch in this market. No human in the drivers seat is ultimately the solution to this problem.
AnotherGoodName
Waymo costs more in areas where it operates right now yet I've heard people swear by it and state that they don't care how much more it costs, they'll always use a Waymo over an Uber or Lyft.
Which is a surprising viewpoint for those of us who don't have the safety concerns others may have but when you think about it, it makes complete sense.
notyourwork
> Nobody will feel safe dealing directly with random strangers.
Let me tell you about taxi cabs.
AnotherGoodName
The ride apps solve the biggest concerns. They have driver ratings so you can see verification from many other riders that the driver is good and they have upfront pricing. Taxi's have started to use apps but at this point the trust is pretty much broken to anyone that's experienced the old "My meters not working but I'll give you a special rate" type of shit.
Essentially Taxi drivers are the random strangers over the apps with ratings and reviews from other riders showing clearly.
kortilla
This is part of why taxi cabs got maybe 1% of the ridership across the US of what uber/lyft get.
Everyone hated taxis because they were so unreliable and unaccountable for scamming you outside of a few dense cities like NY.
GIVEDADDYABYTE
In Washington DC we have Empower https://driveempower.com/
The idea is that drivers pay a flat fee per month and get to keep the entirety of the fare. I used it for a while but my desire to get somewhere fast outweighed my disdain for Uber as middleman. Eventually I went back to Uber/Lyft due to long wait times and unreliable pickups.
It is a lot more like "some guy giving you a ride" instead of a car service. My buddy initially pitched it to me as a cheap alternative to Uber for drivers that were banned from Uber. It is nice that they don't have surge pricing. Empower is somewhere in between the convenience and price of Uber and public transportation.
GCUMstlyHarmls
Is driver verification a hard thing here? Or simple to solve with a web of trust, assuming you could seed it with enough good actors?
I think Uber verifies driver quality/qualifications and vehicle roadworthy-ness?
jnsie
A decentralized Uber is an interesting thought experiment. I imagine the processing power required is a big barrier to entry for the FOSS community.
rightbyte
Processing power? I don't think there is much processing power needed. Like, you only need to ping drivers in your vincinity.
mongol
There are such apps. In Sweden there is Fair, but from what I can gather it uses an app produced by ATOM Mobility, so I take it they use a ready-made platform. Check it out.
tayo42
> the FOSS community couldn't solve
My guess is the real difficult part is maintenance and server costs. It's probably pretty expensive today run
And plenty of competitors have popped up. Any time you travel outside of the US you need to use the local app. Didi, gojek, grab
kjkjadksj
Feels like the new algorithm now is almost a flat dollar a minute plus surge. How I long for the days I could get most anywhere from $4-$7. The uber there and back from the airport can be more than the flight now (once surged to $120 one way for a 35 min trip).
daft_pink
I’m confused about how drivers are able to accept or not accept a ride based on price
null
sleepyguy
I've noticed that a trip I've taken for years has increased significantly in price over the last 6 to 8 months. I used to pay around $17 to $20, but now the same trip costs approximately $25 or more. I spoke with the driver, and he mentioned that he still receives the same amount—$11.00—so it seems the extra cost is going to the platform, not the driver.
It's now more than I use to pay to take a cab and all the cabs are gone.....
mailund
This has been a known strategy from Uber for a long time. Run at a loss to squeeze out the existing offerings, then dramatically increase prices once they've established a monopoly.
Combine this with exploiting loopholes to get around local labour regulation or just outright ignoring it just because, giving them an unfair advantage over competitors that were operating more or less honestly.
I wish I could say I was surprised they got away with it just because they were doing it through an app :shrug:
mannykannot
Doing it through an app is what made it possible to turn each transaction into effectively a pair of opaque auctions with Uber holding all the information, but they got away with it because consumers really like low prices.
wslh
The playbook is similar to other platforms (e.g. AdWords). Third party analysis are great but don't reach the final chain.
Justin_K
Sadly, cab drivers did the same thing. Countless times I was given overpriced rates in times of need, like late night closing time.
blendergeek
Cab drivers dramatically boosted profits while decreasing driver pay? This goes way beyond increasing prices. Uber both increased prices and decreased driver pay at the same time. I used to driver Uber to make extra cash. They usually took about 16-17% and I made $25-30/hour (before taxes and expenses). Now they take more than 25% and I make $20/hour before expenses so I only drive when I want to have a bunch of conversations with random people
Y-bar
Cab drivers are by law (in much of Europe) required to have their prices stated on the window or inside the car, with surcharges clearly displayed. The driver must also have a valid id and license displayed inside the car.
Are you sure you actually rode a taxi and not some illegal or almost illegal rideshare like Uber which has no such regulations? If I were you I would have taken a picture of the car with the license plate and then reported them to the authorities.
grogenaut
They have all of that. Then you get to the place and they hit some buttons and crazy opaque math happens and then you have a 30 minute fight with the dude. And the reader was always broken and no they can't break a 100 or a 20 or a 5
Up front pricing is way better. When I used to do cabs I'd always do upfront prices. $40 to the airport no meter includes tip. 50 ok sounds good. Let's go.
Almost 10 years ago, Uber was hailed for creating consumer surplus [0] in similar studies:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2837639
Discussed on HN: https://news.ycombinator.com/item?id=12478847
Who would have thought that they'd turn that research into algorithms that skim off surplus (from consumers and drivers)?
[0] Consumer surplus: roughly, the benefit of all those consumers who got a lower price than what they would have been willing to pay. Especially prevalent when there's one price for all. So the natural enemy of consumer surplus is price discrimination, where suppliers try to extract close to the maximum amount they're willing to pay from each consumer.